Ong Yong vs. Tiu

Facts:

In 1994 the parties entered into a Pre-Subscription Agreement to recapitalize First Landlink Asia Development Corporation (FLADC) so that the Ong group and the Tiu group would each hold one million shares (par P100). The Ongs paid P100 million in cash for 1,000,000 shares and later advanced another P70 million; the Tius committed property contributions (a four‑storey building and parcels of land) and additional cash to complete their 1,000,000‑share allocation. The Ongs were given the right to manage and operate the Masagana Citimall.

Relations soured and on February 23, 1996 the Tius rescinded the Pre‑Subscription Agreement, accusing the Ongs of withholding shares for the Tius’ property contributions, preventing David and Cely Tiu from performing as Vice‑President and Treasurer, and denying office space. The Ongs countered that the Tius failed to fulfill corporate duties and that the Tius had not paid transfer taxes, preventing issuance of new TCTs and SEC approval for property contributions.

The Tius filed an action with the Securities and Exchange Commission (SEC) (SEC Case No. 02‑96‑5269) on February 27, 1996 seeking confirmation of rescission. A Hearing Officer issued a decision on May 19, 1997 confirming rescission and ordering cancellation of the Ongs’ subscription, return of P170,000,000, surrender of titles, and other relief; the decision was partially reconsidered as to characterization of the P70 million advance. The SEC en banc on September 11, 1998 affirmed the Hearing Officer but classified the P70 million as premium on capital (not a loan), thus not earning interest.

The Court of Appeals on October 5, 1999 affirmed the SEC en banc decision but modified relief: it ordered liquidation and partitioning rules for FLADC’s assets, directed repayment of P70 million to the Ongs and P20 million to the Ongs from the Tius, and awarded management and remaining assets to the Tiu group. The CA characterized both groups as in pari delicto but deemed practical separation necessary.

Both sides petitioned the Supreme Court. In a decision promulgated February 1, 2002 the Court affirmed the CA with modifications: it awarded interest on the P20 million loan (12% p.a. from judicial demand) and on the P70 million advance (10% p.a. from June 19, 1996), and credited the Tius with 49,800 shares for the 151 sq. m. parcel; the Court had agreed with the CA that both groups violated the agreement and described rescission as legally unavailable because of pari delicto, yet found specific performance impractical.

On March 15, 2002 the Ongs filed motions for reconsideration (and motions to modify), and the Tius moved for issuance of a writ of execution. The Tius maintained the SEC order was executory and that delay was prejudicial; the Ongs opposed and argued that the decision should be modified to order specific performance or, if rescission were allowed, a proper partitioning of the mall. Oral arguments were held before the Special Second Division on January 29, 2003.

By resolution (Corona, J.), the Court re‑examined its February 1, 2002 Decision, granted the Ongs’ motions for reconsideration, concluded that the Tius lacked legal personality to rescind a subscription contract that was in fact between FLADC and the Ongs, held that...(Pro-only)

Issues:

• Was the Ongs’ motion for reconsideration pro‑forma or properly entertainable by the Court?
• Could the Tius, in their personal capacities, validly seek rescission of the Pre‑Subscription Agreement?
• Would granting rescission have been lawful in view of the Trust Fund Doctrine and the statutory requirements for distribution, decrease of capital, or dissolution under the Corporation Code?
• Should the writ of ex...(Pro-only)

Ruling:

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Ratio:

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Doctrine:

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